UK: PM May stole some thunder from the opposition - BBH

According to analysts at BBH, UK Prime Minister May stole some thunder from the opposition by proposing a cap on household energy prices and boosting social housing.  

Key Quotes

“Utility share prices did what one would expect in the face of a price cap and retreated.  It was the hardest hit sector in the FTSE 250 on Wednesday, losing 0.7%, while the index as a whole slipped 0.3%.  Her overall performance appeared to have failed to reset her administration.  Sterling was slightly firmer before the Prime Minister spoke, helped by the stronger than expected service PMI.”

“However, sterling trended lower and recorded the session lows late in North American turnover.  The main factor that has slowed sterling's descent in the face of the weak political backdrop and the poor technical condition is the anticipation that BOE will raise rates next month.  While sterling has nearly returned to levels against the dollar last seen at the last BOE meeting's hawkish forward guidance, the implied yield of short-sterling futures strip and the OIS remains high (implying around an 80% chance of a hike), and, of note, higher than the odds of a Fed hike before the end of the year.”  

“Sterling traded sideways in Asia today, but as soon as European traders entered the fray, perhaps seeing how the British press reacted to May's speech, sterling was sold.  It has been pushed below $1.32 for the first time since the BOE meeting.  The low on that day was about $1.3155.  Sterling has also met the 50% retracement objective of the rally since late August.  The 61.8% retracement is found near $1.3110.”  

“The euro has carved what appears to be a rounded bottom against sterling over the past several weeks.  The move above GBP0.8880 today opens the door to GBP0.8960-GBP0.9025.  We note that sterling's weakness continues in the face of little change in expectations for a BOE hike.  Some observers are suggesting that the rate hike that so many are convinced will take place will be simply taking back the post-referendum rate cut and not the start of even a mini-tightening cycle.”